Why WTO Doha Round Matters Naoshi HIROSE August 6, 2007 RIETI Policy Symposium

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Why WTO Doha Round Matters

August 6, 2007 RIETI Policy Symposium

Naoshi HIROSE

Director Multilateral Trade System Department Ministry of Economy, Trade and Industry (METI) Opinions expressed or implied in this presentation are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI).

Progress in the WTO Doha Round

The 4th Ministerial Conference (Doha) November, 2001 The 5th Ministerial Conference (Cancún) September, 2003 2002 2003 2004 The 6th Ministerial Conference (Hong Kong) December, 2005 Adoption of Hong Kong Ministerial Declaration 2005

Re-start of the talks with technical work at the level of experts November 16, 2006 Informal WTO Ministerial Meeting (Davos) January 27, 2007

Return to full negotiation mode

Suspension of the Round (The end of July)

2006 2007

Launch of the Doha Round Collapse of the Conference The General Council July, 2004

Framework agreement

The General Council February, 2004

Resumption of the negotiations November 7 US midterm election

The end of June

Expiration of the US’s TPA (Trade Promotion Authority)

Agriculture, NAMA Chairs’ texts

July 17, 2007

2008 1

Negotiating Areas

Agriculture

Substantial improvements in market access, reductions of all forms of export subsidies, substantial reductions in trade-distorting domestic support.

NAMA

Non-Agricultural Market Access Reduction and elimination of tariffs as well as non-tariff barriers for all products other than agricultural products (e.g. industrial goods).

Services Rules Trade Facilitation

Liberalization of trade in services, with regards to restrictions on foreign equity participation, movement of natural persons, and cross-border supply of services.

Anti-dumping (AD), subsidies (including fisheries subsidies) and regional trade agreements (RTA).

Enhancing transparency, predictability and fairness of, and promoting simplification and acceleration of customs procedures.

Development

“Special and Different Treatment” ( S&D ) provisions, preferential treatment of Least Developed Countries (LDC), facilitating fuller integration of small, vulnerable economies (SVE).

In addition to the above areas, the negotiating areas of DDA include TRIPS (the establishment of a multilateral system for the notification and registration of geographical indications) and Trade and Environment.

2

Significance of the Doha Round for Japan

Reduce tariffs of developed and developing Members -> New Trade Flows.

※ An example of simple average bound rate on non-agricultural products ・ Japan : 2.3% ・ U.S.

: 3.2% ・ EU ・ China : : 3.9% 9.1% ・ Brazil : 30.8% ・ India : 34.3% (Source : World Trade Report 2005 ) ・

Support Japanese service sectors to access foreign service markets.

Strengthening international trade rules thereby improving predictability and preventing trade disputes.

(Failure in concluding the Round could lead to increase in international trade disputes.) ・

Trigger domestic structural reform in Member countries.

3

Positions of Key Members on Main Issues

Agricultural Market Access

Reduction of tariffs

) Defensive Offensive

EU, Japan, India

→ realistic reduction sufficient flexibilities

Exporters

( U.S., Brazil, Australia ) → High ambition 、 limited flexibilities

Agricultural Domestic support

Reduction of farm subsidies

) Defensive

U.S.

→ substantial reduction only if high ambition in market access Offensive

Other than U.S.

→ Demand substantial reduction of U.S.’s subsidies (

NAMA Reduction of tariffs on Non-Agricultural Products)

Defensive

Developing countries

→ Sufficient flexibilities Offensive

Developed countries

→ Reduction with high ambition

4

NAMA Negotiation

1. Tariff levels in developed countries are low, but high tariff levels remain in developing countries. High tariffs in advanced developing countries are especially of concern. Tariff reduction of developing countries encourages not only North South trade, but also South-South trade. 3. A simple Swiss formula with two coefficients should be adopted. The discussion is focused on the level of two coefficients.

40 Non-Agricultural Products : Simple Average Bound Rates of Countries [%] 34.3

30.8

30 24.2

20 15.8

10 9.1

10.1

11.0

2.3

3.2

3.9

0 Japan Uni te d St at es Source : EU Ch in a Kor ea World Trade Report 2005 Au st ral ia South Af rica Tha iland Bra zil In dia 2. Developing countries also maintain high tariffs for certain products.

( US ) (EU) Trucks : 25% Consumer Electronics : 14% Automobiles : 10% etc Countries India Brazil China EU < Changes in Bound Tariff Rates > United States Sample of Products Machinery Automobiles Automobiles Trucks Consumer Electronics Change of Bound Tariff Rates [%] 40 → 10.9

35 → 10.5

25 → 9.4

25 → 7.1

14 → 5.8

( Calculation Condition ) Swiss formula coefficient : 10 for Developed Countries, 15 for Developing ( Calculated by Japan based on WTO Secretariat Sources.

) 4. Tariff reduction rates will be higher than in the Uruguay Round if ambitious coefficients are applied. ・ Uruguay Round : One third (1/3) tariff reduction for developed countries.

・ Doha Round : (Average bound tariff reduction) 52.1% for developed countries (coefficient 10), 53.8% for developing countries (coefficient 15)

5

Trade in Services

1. The services negotiation aims to deregulate or abolish barriers to trade in services such as financial services, transportation, telecommunications, construction and distribution, etc.

Members make commitments how to deregulate or abolish their own barriers each other. Basically, the negotiation has been conducted with “request and offer approach” in which Members submit offers, reflecting requests from other Members.

2. Significant economic effects through increased efficiency in the service sector are expected.

The amount of world trade in services expanded from 783 billion U.S$ in 1990 to 2,415 billion U.S$ in 2005. ( International Trade Statistics 2006, WTO Secretariat ) 3. Level of liberalization in developing countries is significantly lower than in developed countries, due to concerns from the viewpoint of promoting domestic industries and job security. However, in reality, liberalization has contributed to economic growth in developing countries. Furthermore, developing countries are requesting enhanced access of foreign workers into developed countries.

A hypothetical 25 per cent reduction of protection in service sectors will bring GDP gains in the amount of 2.9 per cent for ASEAN countries and 1.4 per cent for India. ( ”OPEN SERVICES MARKETS MATTER” OECD 2001 ) 4. The negotiation started already prior to this Round, but many Members have been unsatisfied because of low level of liberalization. Therefore, at the Hong Kong Ministerial in December 2005, Members agreed on the introduction of new mechanism which aims at further liberalization plurilaterally in specific sectors in addition to “request and offer approach” in which Members negotiate bilaterally.

5. Further, at the Hong Kong Ministerial, it was agreed that Members should submit second round of revised offers by the end of July 2006, which should contain higher level of liberalization. A new deadline has to be agreed upon by Members.

6

Rules: Anti-Dumping Negotiation

1. Anti-Dumping Negotiations “Anti-Dumping (AD)” is a measure sanctioned by the WTO rule to cope with dumping; a situation in which the export price of a product is lower than its selling price in the exporting country. In recent years, the number of AD measures is increasing. In order to prevent Members from abusing the measures only for the purpose of protecting domestic industries, clarification and strengthening of AD rules are necessary.

2. The number of AD measures still remains high. Abuse of AD measures is a common issue among developing and developed countries.

250 200 150 100 50 0 Worldwide trend of AD Measures 119 92 125 170 185 227 216 167 221 151 131 137 95 96 97 98 99 00 01 02 03 04 05 06

1 2 3 4 5

Top 10 countries/areas by the number of AD measures (1995 ~ 2006) Number of AD measures imposed by Number of AD measures taken against India 331

6

Turkey 107 1 China 375 6 Russia 84 U.S.

EC Argentina 239 231 152

7 8 9

China Canada Mexico 92 84 82 2 3 4 Korea Chinese Taipei US 136 107 104 7 8 9 Thailand India Indonesia 76 75 73 South Africa 120 10 Australia 71 5 Japan 97 1 0 Brazil 69 3. Abuse of AD measures undermines the effects of reducing tariffs and liberalizing market access. It is necessary to strengthen the AD rule to establish a predictable trading environment.

Average applied tariff rate and Average AD duty rate The level of Average AD duty rate is around five times as Average applied tariff rate.

Average applied tariff rate of WTO Member countries

10%

(as of 2005 )

Average AD duty rate against Japan

49%

( 2005 ~ 2006 average ) ◆ Example caused by AD measures: There are cases in which AD measures remain in force for decades.

e.g. maximum 33 years on Polychloroprene Rubber, 18 years on ball bearing.

7

Trade Facilitation

1. Negotiation on Trade Facilitation is to enhance the physical distribution of goods and decrease cost of trading etc. through improvement of trade procedures.

Example of Problems in Trade procedures - Lack of transparency and predictability in trade regulations - Lack of uniformity in operations - Complicated procedures of import-export trade - Excessive documents requirements Solution

-

Securing transparency ( Publication of trade regulations, Appeal procedures etc.

) - Simplification and harmonization of trade-related procedures - Special and differential treatment (S&D) for developing countries (Capacity building etc.) 2. Negotiation on Trade Facilitation aims to clarify and improve aspects related to GATT Articles V, VIII and X for smooth transport and trade-related procedures, as well as to strengthen capacity building.

3. Merits of trade facilitation is widely acknowledged by Member countries including developing countries.. Negotiation are going on based on textual proposals.

8

Development

1. DDA is a “Development Round “.

- 80% of all 151 WTO Member are developing countries (121).

- 30 developed countries (OECD member countries) out of WTO members countries. 2. Special Treatment for developing countries throughout negotiation areas.

- Agriculture and NAMA negotiation: Differentiated reduction commitments and flexibility for agriculture domestic support and market access and NAMA market access. - Developing countries are requesting enhanced Special and Differential Treatment (S&D) provisions in WTO Agreements. Members have also discussed ways to assist developing countries so that they can reap more fully the benefit from the multilateral trading system.

3. Members agreed in Hong Kong Ministerial Conference (Dec. 2005) on Special and Differential Treatment for LDC products such as duty-free and quota-free market access. Developed countries also announced their “Development Packages”.

- Development Packages Japan (Development Initiative for Trade): - Allocate no less than $10bn over the next three years for infrastructure development related to trade, production and distribution.

- OVOP (One Village One Product) campaign to provide assistance to developing countries with a view to enhancing their capability, improve and export their promising products to international markets.

- Expand Duty-Free Quota-Free market access to Japan from LDCs up to 98% of tariff lines (starting April 2007).

USA: More than double its contribution to global Aid for Trade ($1.3 billion in 2005 -> $2.7 billion in grants annually by 2010.

EU: Provide 2 billion in aid for Trade as of 2010.

9

Trade Flow and Benefits for Developing Countries • Trade by developing countries is growing, especially South South Trade.

- Trade (share in total world trade) From -> To 1990 2005 Developed -> Developed 55.1% 39.5% Developed -> Developing 16.6% 17.2% Developing -> Developed 16.9% 22.2% Developing -> Developing 9.8% 19.9% (Source: IMF DOT (Direction of Trade Statistics) 2006) - Trading partners for developing countries 1990 Developed countries 77% Developing countries 23% 2005 66% 34%

10

Why We Need Multilateral Negotiation at WTO

•Able to achieve market liberalization from 151 countries at the same time.

•Each country has different offensive interests and defensive interests. -> The web of “gives and takes” among countries are extensive and complex. -> Lengthy negotiation is necessary, but once agreement is reached, possibility that a large package is achieved.

•Countries with less negotiating power (e.g. small developing countries) can nevertheless obtain concessions from big-power countries.

•Creating and Improving trade rules (e.g. reducing and/or eliminating subsidies, clarifying and improving anti-dumping rules) can only be negotiated multilaterally.

•Negotiated results can be enforced by the WTO Dispute Settlement Mechanism.

11

High-level Political Commitment

13th Meeting of APEC Ministers Responsible for Trade Statement on Doha Development Agenda Cairns, Australia, 5-6 July 2007 (Excerpt)

We acknowledge the singular importance of ensuring the continued strength and openness of a rules-based global trading system which operates to provide expanding economic opportunities. We strongly re-affirm our commitment to a successful conclusion of the Doha Round negotiations this year.

We emphasise that a successful Doha outcome must deliver meaningful new market opportunities in order to significantly expand trade, promote global economic growth and foster development. We all undertake to contribute. We will demonstrate the necessary political will and flexibility, and call upon other WTO Members to do the same. To this end we will engage actively and constructively in the negotiations in Geneva.

We reiterate that consensus can only be achieved through an ambitious and balanced result that brings new trade flows in agriculture, industrial goods, and services, thereby securing benefits to all, in particular developing country economies.

12

Road towards Convergence • Multilateral Process (Negotiating Group meetings, formal or informal) vs Small Groups (G4, G6, ……) • High-level talks (minister-level) vs Technical-level discussion • Role of Chairs’ texts

13

Thank You

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